Eliminate the Mortgage Interest Deduction

August 1, 2011

The mortgage interest deduction does not increase homeownership rates and amounts to little more than a subsidy for wealthy homeowners, according to a new Reason Foundation study that recommends eliminating the deduction and streamlining the tax code. The Reason Foundation report suggests a revenue-neutral solution: eliminate the mortgage interest deduction and lower federal income tax rates for all Americans by 8 percent.

The mortgage interest deduction was used on about a quarter of all tax returns filed in 2009.

But the Reason Foundation report shows the home mortgage deduction was used on 73 percent of tax returns filed by those with incomes over $200,000 that year.

The average tax savings for those homeowners: $2,221.

In contrast, just 5.5 percent of tax returns filed by those making $20,000 to $30,000 used the mortgage interest deduction in 2009, with no significant tax savings.

Thirteen percent of tax filers making between $30,000 and $40,000 used the mortgage deduction.

Their tax savings was a paltry $96.

And 23 percent of tax returns with incomes between $40,000 and $50,000 used the mortgage interest deduction, with an average tax savings of just $114.

The study finds that the mortgage interest deduction has not increased homeownership rates and that eliminating it would not reduce homeownership figures or hurt housing prices.